What, Precisely, is Inside Info? Legal Issue Arises in Raj Trial

That is, when does information passed along truly constitute information that others don’t have?

That question came up on Monday in the insider-trading trial of Galleon Group’s Raj Rajaratnam.

Here’s how it all shook down, according to this WSJ story: Margaret Holloway, a senior credit analyst at Moody’s and witness for the prosecution, testified that in July of 2007 she gave confidential information about Hilton’s planned sale to Blackstone to a junior analyst, Deep Shah, to help prepare for a credit-rating discussion about Hilton.

Shah, who has been charged in the case but is believed to be living as a fugitive in India, denied to the WSJ in 2009 that he gave out information about Hilton.

In the meantime, Rajaratnam’s lawyers presented evidence showing that a possible sale of Hilton had long been speculated about by investment analysts and in media reports.

The government previously has said Shah illegally passed information about Hilton’s buyout to Roomy Khan, a former hedge-fund manager and Intel executive who briefly worked for Galleon in the late 1990s. Khan has pleaded guilty to securities fraud and conspiracy charges and agreed to cooperate in the case.

Prosecutors haven’t yet presented any evidence that Shah tipped Khan about the Hilton deal, or that she told Rajaratnam. Prosecutors haven’t yet indicated whether Khan will testify. But on Monday, federal prosecutor Andrew Michaelson signaled to the jury about the government’s allegations in his questions to Holloway.

When he asked her whether she knew that Rajaratnam had bought 400,000 shares of Hilton on July 3, before the deal was announced, and made $4 million, she said she didn’t have any personal knowledge of it.

But in attempting to show that Rajaratnam was trading in Hilton based on legitimate information, his lawyer Michael Starr questioned Holloway about numerous reports by investment analysts and reporters in the six months before the deal saying Hilton was considered a possible subject of a leveraged buyout.

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